Foreign Ownership, Control, or Influence (FOCI)

Foreign Ownership, Control, or Influence (FOCI) describes a condition where a foreign government, entity, or individual has the ability - whether through ownership, contract, technology dependency, or other means - to direct the management or operations of a U.S. contractor in a way that could adversely affect performance of classified contracts and pose an unacceptable risk to national security. FOCI determinations are made by the Defense Counterintelligence and Security Agency (DCSA) and are a prerequisite condition that must be addressed before a company can obtain or maintain a Facility Security Clearance (FCL). The governing framework is the National Industrial Security Program Operating Manual (NISPOM), implemented through 32 CFR Part 117, as well as Executive Order 12829 (National Industrial Security Program).

What is FOCI?

FOCI exists when a foreign interest exercises or has the ability to exercise any of the following: control over the composition of the board of directors or equivalent governing body; control over key management positions; access to classified information; influence over research, development, or production; or access to financial resources or critical technology. Majority ownership by a foreign entity is the clearest trigger, but FOCI can arise from minority ownership, licensing agreements, board observer rights, or contractual relationships that give a foreign party leverage over corporate decisions.

DCSA evaluates FOCI using a four-factor test that weighs the foreign interest's record of compliance with U.S. laws and its willingness to safeguard classified information, the nature of bilateral and multilateral relationships between the United States and the foreign country, the sensitivity of classified information the company accesses, and the company's ownership and governance structure.

When a company is determined to be under FOCI, it cannot hold an FCL in an unmitigated state. DCSA and the company negotiate a mitigation arrangement that limits the foreign interest's access and influence while preserving business viability. Common mitigation structures include Board Resolutions, Security Control Agreements (SCAs), Special Security Agreements (SSAs), and Proxy Agreements. The appropriate structure depends on the degree of foreign ownership and the sensitivity of the work performed.

Why it matters for contractors

Any U.S. contractor that requires personnel security clearances for classified work must have an active FCL. A FOCI condition that cannot be adequately mitigated results in denial or revocation of the FCL, which can disqualify the company from pursuing classified contracts entirely. This risk is particularly acute for U.S. subsidiaries of foreign companies, private equity portfolio companies with foreign limited partners, and companies that have received foreign investment through venture capital funds with foreign general or limited partners.

DCSA increased FOCI scrutiny significantly after 2019 following legislative changes in the Foreign Investment Risk Review Modernization Act (FIRRMA) and the broader national security focus on supply chain integrity. The Committee on Foreign Investment in the United States (CFIUS) reviews foreign acquisitions of U.S. businesses for national security implications, and a CFIUS mitigation agreement may run parallel to a DCSA FOCI mitigation arrangement.

Contractors undergoing foreign acquisition or investment must notify DCSA promptly and work proactively with the agency to structure mitigation before the transaction closes, or risk losing cleared personnel and contract access.

Example

A U.S. cybersecurity firm with a DoD FCL is acquired by a European private equity fund in which a state-owned enterprise from a foreign country holds a 30 percent limited partnership interest. DCSA determines the company is under FOCI because the foreign state-owned enterprise could exercise influence through the fund's governance documents. DCSA and the company negotiate a Special Security Agreement that creates a Government Security Committee composed of cleared U.S. persons who hold board-level authority over classified contract matters. The SSA allows the company to retain its FCL while limiting the foreign interest's access to classified program information.